Tingyi Kennedy

8/9/2019 Tingyi Kennedy

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Tingyi (322 HK)Joshua Kenn ed y, Soni an Ca pita l Mana geme nt

[email protected]

June 2014


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Would you have bought Coca-Cola in 1988?

Imagine for a moment, rather than reading this recommendation in 2014, you are instead reading a

writeup recommending the purchase of shares of Coke in 1988.

You read this recommendation and you say to yourself: is this a contrarian idea? Coke was alreadyenormous, with a $20 billion market cap. It cannot be said to have been undiscovered in any sense.

And it certainly had not been underperforming: the stock price had appreciated every year between

1980 and 1988.

Well, you say to yourself: is it cheap? Umm not in any obvious way, no. At the time Coke sold for

approximately 15x earnings, 5x book value and 12x cash flow. This was a 30% premium to the sector

average on earnings, and a 50% premium on cash flow.

But the investor saw something, because he bought enough of the stock for it to be, in effect, a 25%

position. He filled his boots. With a stock everybody knew about. And with the benefit of hindsight we

know this was one of the greatest investments by one of the greatest investors of the modern era: the

then-59-year-old Chairman of Berkshire Hathaway, Warren Buffett. The stock was a 10-bagger 10 years

later. A $1 billion investment became $10 billion.

What he sawand Im reducing here -- was the combination of two factors:

1) A durable competitive advantage. In Cokes case this was comprised of its brand, customer

loyalty, and global distribution system.

2) A long runway of growth. In Cokes case, in 1988, this was characterized by the fact that

the average American consumed 290 servings of Coke per year, while in most global

emerging markets, the per capita consumption could be counted on one hand.

There are many companies with a durable competitive advantage. And there are many long runways of

growth. But the combination of the two is rareand if you think you can name more than a few, you

may need to re-think your assumptions on one or both factors. It is the combination that is critical,

because the company in question needs to be able to re-invest the extraordinary profits that accrue

from its competitive advantage into that same competitive advantage, and it needs to do so for a long

time.

Buffett looked at Coke and concluded he could be almost certainthat Coke would still be making money

the same way, many years down the road. And he looked at the international penetration of Coca-Cola

and concluded he could be almost certainthat consumption would be higher, probably much higher,many years into the future.

In his 1989 annual report -- which is a tour-de-force -- Buffett would call the cigar-butt investing that he

had practiced for much of his career up to that point foolish, and would pen several of his most-

quoted investing aphorisms, including: Its far better to buy a wonderful company at a fair price than a

fair company at a wonderful price.


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I include this rather lengthy prologue not because I am recommending Coke, but because I am

recommending what I believe to be the closest thing to Coke in 1988 that is available today. A company

that dominates its growing market with a durable competitive advantage and will do so for many years

to come, and that is available for a price that today is fair, but in 10 years will appear to have been a

steal: Hong Kong-listed consumer packaged goods maker Tingyi.

Background

Tingyi is both Chinas largest maker of instant noodles and Chinas largest beverage company. The

Tianjin-based company was founded in 1991 by the four Taiwanese Wei brothers, and 61-year-old Ing

Chou Wei remains Chairman and Chief Executive today. The companys products utilize the Master

Kong brand1(image below), esteemed in China for quality and value. Tingyis sales in 2013 totaled

$10.9 billion, and the companys market capitalization is approximately $15 billion.

Tingyis Noodle Business

Its our snack, its our peanut butter and jelly sandwich, its our bowl of cereal. Its something that has

been a part of my life forever. -Korean-American chef Roy Choi on instant noodles in Asian culture

Tingyi is the worlds largest maker of instant noodles, a $44 billion market that analysts expect to grow

to $61 billion by 2017, an 8.5% CAGR. China is the largest market for instant noodles and Tingyi really

controls it, with volume market share of 44% and value market share of 56%.

1Master Kong is an adaptation of the name Kongzi, of which the anglicanization is Confucius. Thus, Master

Kongs brand representation is consistent with traditional Confucian values: frugality, duty, honesty, cleanliness.


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Tingyi makes about 2/3s of its profits from noodles, although noodles only represent about 40% of

sales. Noodles is a more mature category than beveragessales growth has slowed to 9% in each of2012 and 2013, from approximately 25% in 2010 and 2011. But noodles is a big cash generator for

Tingyi; the segment has earned an 11% operating margin each of the last 4 years . If Tingyis noodles

business were to stand alone, and you were to value it at half of Tingyis market cap, it would be a 4.5%

FCF yield business.

Tingyi started their instant noodle business in 1992, and sold a stake to Japanese noodle maker Sanyo

Foods in 1999. Today, the founding family owns 33% of the shares, Sanyo owns 33% of the shares, and

33% float freely. While 9% annual sales growth is still robust, Tingyis noodle business appears in most

regards to be a cash cow, throwing off investment capital for the beverages business that is both larger

and more fragmented.

Chinas market for noodles is enormous. 43% of all instant noodles sold in the world are sold in China:

42.5 billion units in 2012thats 100 million units a day. But this is not a sunset industry. Per capita

consumption in China remains relatively low. China only consumes 32 packets per capita annually, while

South Korea consumes 69 packets, Indonesia consumes 63 and Japan and Taiwan each consume 40

packets/capita.

In addition, and more promising, is the potential for growth in average selling price. Chinese in Taiwan

and Hong Kong spend 2x as much on instant noodles as their mainland counterparts. Cup noodles and

bowl noodles, instant noodles which come packaged in the Styrofoam vessel in which the noodles will

be cooked, tend to sell for 3-4x the price of packet noodles, which must be cooked on a stovetop. InChina, cup and bowl noodles only account for 17% of consumption, compared with 47% in Taiwan. Cup

and bowl noodles, where Tingyis share is a towering 67%, are still growing strongly due to demand from

time-poor city dwellers.

Tingyis competitive advantage in noodles is based on its enormous scale (edible oil, flour and PET are

big inputs), a trusted brand, and superior distribution.


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Tingyis Beverage Business

The next decade is still a golden stage for the development of the food and beverage

industry in the PRC Tingyi Chairman Wei, 2012 Annual Report

In 2015, China will become the worldslargest beverage market. Chinas beverage market

is currently 4x the size of the noodle market and growing at a faster rate. The largest

component of the beverage market is bottled water at 32%, followed by carbonated drinks

at 23%, then juice at 17% and RTD (ready-to-drink) tea at 16%. Tingyis beverage

business is a joint venture with Japanese drinks giant Asahi, of which Tingyi owns a

controlling stake of 47.5%2.

Tingyi has leading share in the bottled water market at 26%, but it is RTD tea that is

Tingyis stronghold. Approximately half of Tingyis beverage sales come from RTD tea and

Tingyi controls approximately half of that market. Tingyis beverage sales make up 57% of

total sales having grown 27% in 2013 but so far only generate 30% of operating profits.

The beverage business currently generates only 3.5% operating margins for several reasons

which are discussed below. It is a growing market where competition is fierce and

characterized by aggressive promotional spending. Tingyis sources of advantagein

beverages, like in noodles, are its scale, brand, and a laboriously built distribution system,

which allows it to introduce new products efficiently.

Pepsi and Competitive Advantage in China

2Ting Hsin is the Taiwanese investment vehicle of the founding Wei family, so Tingyi management controls a

majority of the Tingyi-Asahi JV in conjunction with Ting Hsin.


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One does not simply build a distribution network in China. It is folly.

Although it can be hard to make meaning of these numbers, here is what youd have to do

to build a production and distribution system to rival Tingyis: open 566 sales offices, 75

warehouses serving 33,504 wholesalers and 110,355 direct retailers. Youd need 80,541

employees, 654 production lines, and 119 production centers. As Boromir said: Not with

10,000 men could you do this

Chinese Consumption and the Runway of Growth

The image above comes from Coca-Cola5. The message is clear: what was true for Buffett

in 1989 remains true today. Coke and by extension all carbonated soft drinks -- are still

5Just a comment on the slide: what is that guy doing? Is he speed-skating? Break-dancing with a Coke in his

hand? I know Coke is the master of consumer branding, but images like this make me wonder.


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underpenetrated internationally, particularly in the emerging world. Im not sure anyone

can imagine Chinese consumers ever drinking 400+ servings of Coke every year like the

US, (let alone matching the jaw-dropping Mexican levels!), but I expect that Chinese

consumption grows inexorably toward levels currently exhibited by other developing

nations. For China to reach the average of just Russia, Turkey and Brazil would suggest 4x

growth.

The penetration of Coke products referred to in the chart above is simply meant to illustrate

the broader Chinese beverage market. In terms of non-carbonated soft-drinks and water,

growth opportunities are also ample. In 2011, Chinas per capita beverage consumption

was 52.6 liters less than half of Taiwans 113 liters, and only 15% of the USA at 342

liters. Regarding RTD tea, Japan and Taiwan each have per capita consumption of over 40

liters, while Chinas is 11.5. For bottled water, already the largest component of the

beverage market, Chinas per capita consumptionremains below the global average, and

just 1/5thof Hong Kong.

The Price War Or,

How Long Does It Take to Drown Your Competitor in the Bathtub?

In order to properly value Tingyi, it is essential to understand the competitive landscape, in both noodles

and beverages. While the entire marketplace is extremely competitive, the most straightforward way to

understand it is to examine the battle between Tingyi and its fiercest competitor in both noodles and

RTD tea: Uni-President China.


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Tingyi, as discussed above, absolutely dominates the instant noodle industry in China. But like a great

sports franchise accustomed to winning championships, Tingyisexpectation is domination and nothing

less. A simplified version of the price war goes like this: Uni-President gained substantial share in 2010

by launching a differentiated and very successful flavor: Lao Tan Pickled Cabbage and Beef Flavored

Noodles6. Tingyi responded with its own pickled cabbage flavor andin the way Tingyi does

methodically set about reclaiming lost market share by leveraging its distribution and amping up

advertising and promotional spend. And of course it worked, blunting the advance of UPCs market

share.

In 2012, sensing the inevitable, UPC launched an aggressive promotional war, known in the industry as

the sausage war because of the dehydrated ham sausages included in packs of noodles as a free bonus.

Tingyi responded with its own sausages and settled into a siege mentality. Tingyi is methodically

drowning UPC.

Do you hear that, Mr. Anderson? That is the sound of inevitability.

The two companies compete in beverages, as well as noodles. And while the sausage war has been

more widely reported and watched, a similar story has played out in the milk tea categoryon the

beverage side. Uni-President launched a breakthrough product, Tingyi matched it and methodically

staunched the advance and then reclaimed share. In beverages, however, the damage to margins has

been more observable. Critically, what this means is that when the sausage war eventually ends, the

impact will not be limited to noodles. It will reverberate throughout Tingyis business.

There are signs that the war is nearing an end. Tingyi has clearly stated its parameters: when the

company has 70% share in pickled cabbage noodles, it will cease sausage inclusion. In some

geographies, the promotions have already been withdrawn, and Uni-President has signaled its appetite

for a truce.

In addition to the observed changes in UPCs market behavior, here is why I think Tingyi has won this

war and that it will end soon:

6Pickled cabbage flavor sounds crazy but, seriously, its delicious.


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The chart above is UPCs free cash flow. They are losing a lot of blood. UPC made an operating loss in

2013, for the first time in its history. Meanwhile Tingyi is still making profits and generating free cash.

How much longer can this go on? Well, the chart below is the net debt as a percentage of total equity

on UPCs balance sheet:


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Sure enough, in May 2014, UPC announced a 1-for-5 rights issue, raising $3.3 billion HKD to repay debt.

This is actually less money than went out the door in 2013, so the company clearly will not tolerate a

much higher debt load than it currently bears. UPC is majority owned by a well-financed parent,

Taiwanese retail giant Uni-President Enterprises. But reportedly, headquarterstolerance for a long,

bloody war and its associated cash burn is limited.

Finally, below is why I think it will be so important to Tingyi when competition rationalizes, whether next

year, three years or five years from now:

This chart is Tingyis SG&A/Sales ratio for the last 15 quarters. The increase is, in essence, the burden of

a heightened competitive environment. Lets call it 4 points of SG&A/Sales. If Tingyi is able to reduce

this spend at some point in the future, those 4 points drop pretty much straight to the operating line. In

Tingyis case, this would nearly double its current operating margin, which for the drinks business in

2013 was a paltry 3.5% and for the group was 5.3%.

Tingyi management have a reputation for meticulous cost control. From the years 2005 through 2009,

Tingyis beverages business earned double-digit operating margins, averaging 13.2%. Managements

guidance for 8% net margins in the Pepsi business suggest a return to double digit operating margins for

the beverages business overall is achievable. With noodles currently earning an 11% operating margin

in a challenging environment, that segment appears capable of contributing 12-13% or higher. Overall,

my expectation is that Tingyi can achieve a 10% overall operating margin by 2016.

And At Last The Stock Price


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Tingyis stock price first breached $20/share in the second quarter of 2009, five years ago. Today, the

stock sells for $21.25. During that time, Tingyis sales have more than doubled, growing double-digits

every single year. The companys gross margin has remained steadily around 30%, which is Tingyis

long-term average in both noodles and beverage.

Gross profits double over five years but the stock consolidates

But in that time, the company has not grown operating profits, because its operating margin has fallen

from 10.8% in 2009 to 5.3% in 2013. This makes Tingyi look expensive on an earnings basis: nearly 25x

2015 consensus earnings. Eye-watering for a company that hasnt grown its bottom line in 5 years, to

be sure. But while the stock has consolidated, Tingyi has chosen to endure short-term pain in order to

position itself to dominate longer-term. That era is about to begin.

This is why I believe Tingyi can only be understood in the context of its market position and the

competitive dynamic in food and beverage in China. Consider that Tingyis Pepsi business made no

profits in 2013, but will contribute significant profits in the future7. In a more rational competitive

environment, Tingyis operating margin can return to 8-10%, and its net margin can return to 6-7%8.

Tingyi has historically sold for approximately 25x earnings, and thats what youre paying today. But

Tingyi today is under-earning, and so I believe you are getting fantastic assets for a much cheaper than

historical price.

A Wonderful Company at a Fair Price

Circling back to Buffettand his Coke investment: he paid 15x earnings, 5x book value and 12x cash flow.

Tingyi today? Also 5x book value, also 12x cash flow. What matters, in this case, with this type of

business, is not necessarily what headline multiples you pay, but rather how certain you can be that the

competitive advantage you perceive will remain in place for years to come, and how many dollars can

7$250 million USD annually from the Pepsi business -- $119m after minority interest -- would represent 30% of

2013 total group core net profits.8On this I differ from consensus, which projects a net margin under 5% through the end of 2016. Here is

something I believe: forecasts based on valuation models are not very good at capturing operating leverage.


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ultimately be reinvested within the moat that the competitive advantage creates. This is a classic serial

compounder.

The advantage allotted from the distribution system Tingyi has built is, in the eyes of a competitor as

fearsome as Pepsi, basically insurmountable. And the growth implied by Chinese beverage consumption

levels is virtually inevitable.

Tingyi, then, with $11 billion in sales today, is set to grow to 3-4x its current size in the next decade.9 It

seems to me, with the growth of the market, the addition of the Pepsi portfolio, already established JVs

in snacks, frozen foods and infant dairy, and with nearly $2 billion USD in cash on hand for potential

acquisitions, that this scale is far more likely to come to pass than not.

My valuation: By growing sales 13% in each of 2014-2016, and by achieving a 10% OPM, the stock can

reach $32 HKD in 2016, an IRR of 17%, not including dividends. At that point the stock would sell for a

22x trailing multiple; it has not sold below 25x since 2005. At the end of 2016, I believe that Tingyi will

stillbe a company with a durable competitive advantage and a long runway of growth, capable of

compounding appreciated capital for years to come. It will be a $25 billion USD company, net cash,

generating $1 billion USD annually in free cash, paying out $500 million in dividends.

I am using 3-year numbers here. But I really think this is a 10-year idea.

Other Valuation Considerations

Below are some valuation comparisons for Tingyi. Want Want China Holdings is a useful one in some

regards: it is a comparably-sized, China-focused food and beverage manufacturer started by a

Taiwanese entrepreneur. But it competes directly with Tingyi only in bottled water, and its presence in

dairy products and its utter domination of the uniquely Chinese (and high-margin!) market for rice

crackers makes margin comparisons somewhat less valid. However, it is instructive to know that low

margins are not the inevitable fate of Chinese F&B companies: Want Want earned 18% net margins in

2013.

Regarding Coke and Pepsi, I would highlight a few things. 1) They are approximately 10x the size of

Tingyi. 2) Tingyi looks cheap on sales multiples but of course Coke and Pepsi do extremely high gross

margins (50-60%). This is in part a feature of their business models but I would emphasize that Coke and

Pepsi have both been buying back their bottling operations in important markets in the last few years.10

3) On EV/EBITDA, Tingyi, Coke and Pepsi are about in line. Tingyi does not have a global brand like Coke

or Pepsi, but also is not exposed to any mature markets, only the swiftly-growing Chinese market.

9To triple sales from 2013 levels in 10 years requires compounded annual sales growth of 11.6%. The companys

trailing 5-year average sales CAGR is 20.6%.10

Tingyi also looks cheap on multiples higher up the income statement because it consolidates TABs results and

pays a large minority interest line item to its JV partners.


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Tingyis balance sheet is appropriate for a steadily-growing but cash-generative business, with net

debt/equity at 15% and $1.9 billion USD of cash-on-hand. Despite the difficult business environment,

the company has generated approximately $500m USD in free cash flow each of the last two years,

despite spending nearly $1.7 billion USD on capex over that time. 11 The company pays half of its

earnings out as a dividend, today yielding 1.3%.

Tingyis Brand

Coca-Cola is often cited as the single best example of the value of a brand. Indeed, many people believe

that there is in fact no discernable difference at all between Coke and Pepsi, except that people seem to

feel better about Coke. What better description of the value of a brand could there be? One of the

stories about why Buffett and Munger decided to bet so heavily on Coke in 1989 is that in their own

estimation, the value of the Coca-Cola brand was $100 billion, based on the amount you would have to

spend in advertising to replicate it. And the whole company, at the time, was selling for $20 billion.

Tingyis Master Kong brand is not like Coke or Pepsi. It is virtually unknown outside China. But the

Chinese market is so large, so much potential, that Tingyi doesnt needto be known outside China. The

Master Kong brand must be evaluated for what it is: an indigenously Chinese brand for Chinese

consumers. I am not going to assert that it is worth some multiple of the market value of the company.

But it is quite a valuable thing, and it may indeed be undervalued.

In Tingyis 2012 annual report, the company cites awards by the German Brands association for Best

Product Brand and Best F&B Brand in China. The association approximates the value of the Master

Kong brand at $1.5 billion.

Master Kong is the single most frequently chosen brand by consumers in China. According to brand

consultants Kantar Worldpanel, the brand is bought by more than 91% of households in Chinathe

highest penetration of anyconsumer brand. It is also purchased the most often, at an average of

9x/year. Master Kong products were purchased 1.3 billion times in the last year.

11This is a capex/sales ratio of 8.7%, which I expect to decline toward 6% with scale, boosting FCF


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In 2011, market research firm TNS ranked the most valued brands in China12. Japanese electronics firm

Sony was #1. Master Kong was #2. Here is what I think is the most impressive illustration of the Master

Kong brand position, from Kantar and Bain Consulting:

The chart above demonstrates that not only is the penetration of Master Kongs brand extraordinarily

high in noodles and tea, but it also shows a critical factor about the approach that Chinese consumers

take to brands in the packaged goods categories. The most penetrated brands utterly dwarf the average

penetration of the top 20 brands in that category. The conclusion then is that once Chinese consumers

find something they like and trust, they choose it again and again and are not particularly apt to try out

new brands. To me, that is the basis of a brand-based, and therefore durable, competitive advantage.

Why Does this Opportunity Exist?

No discussion of an investment idea is complete without askingto paraphrase Howard MarksOK,

but who doesnt already see that?

12Not valued in the sense of valuation, but rather a ranking of brands that consumers highly value.


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And yet, while that question is intrinsic to our stock-picking methodology, I have largely argued that

Tingyi is hiding in plain sight. It is not undiscovered not at a $15 billion valuation and with literally

dozens of analysts covering it. It is not the product of a restructuring, it is not under new management,

it does not employ disruptive technology.

Rather, my contention is that Tingyi is right there for everyone to see, but investors seem to not quiteunderstand what it is they are looking at. Why? A few possibilities:

1) Only by watching Tingyis main competitor Uni-President, can we conclude that the

promotional war of attrition is nearing an end. Tingyi, which has maintained growth and

gross profitability during this period, will benefit substantially from operating leverage.

2) Only by watching Pepsis decision-making in China are we are able to put a conceptual value

on Tingyis greatest asset: its distribution network. Tingyi is further under-earning by

absorbing Pepsis loss-making operations, but will leverage Pepsis product portfolio for

years to come.

3) Only by understanding Master Kongs brand for what it is: a Chinese brand for Chinese

consumers, can Western investors appreciate what a powerful asset it is for Tingyi.

Finally, Tingyi is currently a bit of a tweener. Value investors cannot get past the PE multiple, despite

the reality that Tingyi has been under-earning. Growth investors cannot get excited about a company

that hasnt grown its bottom line substantially since 2009. And momentum investors cannot get excited

about a stock price that has consolidated for 5 years.

To appreciate Tingyi for what it is, no matter what type of investor you are, you must be willing step

outside your style box. I hope this document, to some small degree, helps make that possible.

Catalyst

Fundamentally, nothing represents more of a paradigm shift for this company than a change in the

competitive environment. But there are some more technical catalysts in the near future, in particular

related to the ownership of the beverages JV.

First, Pepsi must decide whether or not to exercise its option to increase its stake in Tingyi-Asahi

Beverages by October 31, 2015. Pepsi must pay cash at a pre-determined and escalating valuation to

take its stake from 5% to 20%, on a fully-diluted basis. If Pepsi exercises the option, Tingyi would hold

40%, Pepsi 20%, and Asahi and the Wei family ownership vehicle Ting Hsin would own the remaining

40% between them.13 The initial deal valued TAB at $15 billion, which has grown by 15% in 2014 and

will grow by another 15% in 2015.

By October 2015, Pepsi will have to decide whether to pay approximately $3 billion in cash to increase

its stake in TAB. $3 billion in cash is a spicy meatball, even for Pepsi. So Pepsi is in a tough spot, either

they pay the cash which confirms the value of the JV at $20b, or they deem the valuation too high, save

13Thus, Tingyi management would maintain control


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the $3 billion presumably to spend on their snacks business in China, and leave Tingyi with a larger share

of TAB.

Either way, once it is settled, Tingyi will begin the process of IPOing the drinks business, probably in

2016. While it is currently difficult to determine without a lot of subjectivity what the value of the

noodles and drinks businesses are separately, a listing of the drinks business will provide clarity.

Risks

Tingyi is a large buyer of flour, palm oil, PET and sugar. There can be no question that as these costs

rise, Tingyis gross margin suffers it hit a 10-year low of 26.5% in 2011. I think this risk is manageable

because Tingyis scale makes it the lowest-cost producer with the strongest buying power. In fact, the

promotional environment in both noodles and beverages that we currently see is enabled by the current

benign input price environment. When the tide rises, the tallest man is still breathing while others

drown. For its part, management refers to current input prices as still at a high level.

This input price risk is intertwined with the question of whether or not Tingyis market position implies

pricing power. Doing business in a centrally planned economy, Tingyi and its competitors need

government approval to raise prices, and somewhat infamously this request was denied in 2007 as

inflation surged in China. This is a knock on Tingyi, but I tend to see it differently. First, it has createdthe environment we see today where no competitors are willing to cutprices, rather all the price

competition is conducted through promotions. I think this plays to Tingyis advantage in that it has the

greatest scale and most respected brand. Second, while the market tends to view this restraint as a lack

of pricing power, I think it is more like what Charlie Munger likes to identify as unexploitedpricing

power, as Tingyi has learned to live with a stable price environment, but Chinas market is only

becoming more open over time. Finally, Tingyi has effectively been able to raise prices in the past by


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introducing new, higher-value products and exiting the lowest end of the noodle market. The noodle

value upgrade cycle represents considerable pricing opportunity for Tingyi.

Conclusion

Several times every year, a weighty and serious investor looks long and with profound respect at Coca-Colas record, but comes regretfully to the conclusion that he is looking too late. The specters of

saturation and competition rise before him. Forbes Magazine, 1938

While I have made an admittedly lengthy argument here, I have left out many factors that should

influence an investment decision. For instance: I believe strongly in Tingyis management, its depth, its

approach to the brand and to maximizing shareholder value. I have largely omitted discussion of

Tingyis other growth opportunities in snack foods, its capex requirements, efficiency programs for the

companys operating cycle, the list goes on. It is possible, in a report like this, to blur the readers eyes,

to practically go on forever

Rather I have tried to streamline to what I think is essential and in the process try to illuminate a

broader question about investing in general: when do you pay up? If you are a value investor you buy

cheap stocks, and if you are a growth investor you buy growth stories you think are underestimated.

But what do you do with the 10-year money? How do you decide the right value for the wonderful

business?

I think it looks something like Tingyi. Tingyi is in two businesses that will not be disrupted. Noodles are

part of the essential fabric of Chinese life, the very definition of a staple. Beverage consumption can

only grow in China. Whatever happens to Chinese socio-political life in the next decadeand the

changes could range from meaningless to significantnoodles, water and tea will be consumed. And

Tingyi will not be moved from its position. Growth may be lumpy, profitability may vary, but Tingyi willbe a productive asset, supplying essential goods to loyal customers in ever greater numbers.

The dilemma is highlighted by the quote above from Forbes. I dont think a company like Tingyi ever

looks cheap in real time. It only looks cheap in hindsight.

Documents

Tingyi Kennedy